Emerald Partners v. Berlin

787 A.2d 85 (2001)

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Nature of the Case

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Facts

P is a New Jersey limited partnership, and filed this action on March 1, 1988, to enjoin the consummation of a merger between May Petroleum, Inc. (“May”), a Delaware corporation and thirteen corporations owned by Craig Hall (“Hall”), the Chairman and Chief Executive Officer of May. Also, joined as defendants were May’s directors, Ronald P. Berlin, David L. Florence, Rex A. Sebastian, and Theodore H. Strauss (collectively the “director defendants”). In October 1987, Hall, a 52.4% owner of May’s common stock, proposed a merger of May and thirteen sub-chapter S corporations owned by Hall that were primarily engaged in the real estate service business. The outside directors authorized the engagement of Bear Stearns & Company (“Bear Stearns”) to act as investment advisor and render a fairness opinion to the board and the May stockholders. The deal would have Hall getting twenty-seven million May common shares in exchange for the merger of the Hall corporations with May, increasing Hall’s shareholding to 73.5% of May’s outstanding common stock. The corporations entered into a proposed merger agreement on November 30, 1987. On February 1, 1988, effective January 29, 1988, Hall reduced his beneficial interest in May to 25% of the outstanding common stock by transferring shares to independent irrevocable trusts created for the benefit of his children. This transfer took place before the record date and prior to the stockholder vote on the merger. The merger agreement was reaffirmed by the board on February 13, 1988, with the only change reflecting the reduction in Hall’s ownership. On February 16, 1988, May issued a proxy statement to shareholders that described May, the Hall corporations and the proposed merger terms. The May shareholders approved the merger on March 11, 1988, despite the pendency of P's request for injunctive relief. The Court of Chancery, on March 18, 1988, issued a preliminary injunction enjoining the merger on the grounds that Article Fourteenth of May’s certificate of incorporation required a supermajority vote and that at the special meeting of the stockholders either no quorum was present, or the merger did not receive the required vote. This Court, en banc, orally reversed the grant of the injunction on August 15, 1988, and later issued a written opinion holding that the supermajority provision was inapplicable and that the quorum requirement and the voting power provisions of the certificate of incorporation were correctly applied and satisfied. The merger was completed on August 15, 1988. The initial order from this court stated that “the parties to the merger may proceed at their own risk.” The obvious risk referred to in that order, as the dissenting opinion later made clear, was that the proponents of the merger might later have to prove its entire fairness. Following the consummation of the merger, P continued its class and derivative actions. In the second appeal, we reviewed a summary judgment grant to D and concluded that “the entire fairness claim was fairly pleaded and [was] intertwined with disclosure violation claims.” We affirmed the judgment in favor of the corporation but reversed the grant of summary judgment in favor of the director defendants. We remanded the matter to the Court of Chancery for a trial pursuant to the entire fairness standard of review.